India industrial output
India industrial output

Indian Industrial Output Contracts Surprise 0.4%

The Indian industrial data coincided with the trade deficit climbing to a record $20.96 billion, sending the country's currency down to its weakest level in two months of 55.11 rupees to the dollar. Shares also turned negative.

India's industrial output shrank by a surprise 0.4% in September and the country's trade deficit hit a record high, data showed Monday, underscoring the government's challenge in spurring growth.

The September industrial production figures for Asia's third-largest economy were sharply below market expectations of a 2.8% year-on-year rise and a blow to the government which hopes a recent reform drive will boost the economy.

"The figures are testament to the external and structural headwinds India's economy is still facing," HSBC India chief economist Leif Eskesen said.

India's production at factories, mines and utilities was in sharp contrast to industrial output in neighboring China that grew by 9.6% in October amid signs of tentative recovery in Asia after recent weakness.

The Indian industrial data coincided with the trade deficit climbing to a record $20.96 billion, sending the country's currency down to its weakest level in two months of 55.11 rupees to the dollar. Shares also turned negative.

October's exports fell by 1.63% from a year earlier to $23.24 billion, hit by weak European and U.S. markets, while imports rose by 7.4% as India's huge reliance on imported oil to feed its economy pushed up purchases.

On the industrial scorecard, manufacturing output slipped by 1.5% while capital goods -- such as factory plant equipment -- plunged by 12.2%, highlighting weak investment and business confidence.

The figures come as India has been struggling to avoid a downgrade by ratings agencies of its sovereign debt to junk status.

"Overall economic momentum is muted," said Jyoti Narasimhan, economist at IHS Global Insight.

Trouble in the Once-Booming Economy

The once-booming South Asian economy has been hit by continuing high interest rates in the face of stubbornly strong inflation, sluggish exports at a time of global economic weakness and slow investment.

Prime Minister Manmohan Singh, who is keen to revive the economy with general elections due in 2014, announced a string of reforms in September, opening up retail and other sectors to wider foreign investment to drive the economy.

He declared at the weekend that the economic "gloom and doom" hanging over the country had been dispelled after more recently released figures indicated the economy was stabilising.

Car sales, for instance, jumped 23% in October while a private index suggested manufacturing held steady last month.

Singh said he planned to press ahead with reforms even though the recent reform blitz has already cost the government its parliamentary majority with the exit of a key ally, and analysts doubt his administration's ability to deliver.

The 80-year-old premier said growth could be 6% in this fiscal year -- strong by western standards but insufficient for India which needs to expand by nine to 10% to significantly lower widespread poverty, economists say.

Markets were now focused on data due Wednesday expected to show inflation rose in October from 7.81% in September -- far above the central bank's 5% comfort level, giving it scant room to ease high borrowing costs and stimulate the economy.

"With elevated inflation, we now expect the central bank to ease only in early 2013," said IHS's Narasimhan, while Goldman Sachs said it expected the bank to wait until March to cut rates.

The Bombay Stock Exchange's leading 30-share benchmark index was trading down 0.05% at 18,674.11 points.

- Penny MacRae, AFP

Copyright Agency France-Presse, 2012

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish